June 07, 2010

“Budget 2010-2011” Shemrez Nauman Afzal, Research Analyst

Budget 2010-2011
Pakistan’s Economic Outlook

INTRODUCTION

On June 05, 2010, Finance Minister Abdul Hafeez Shaikh claimed to present to the National
Assembly a people-centric budget that endeavored to provide the maximum possible relief to
the general public in the precarious economic situation of today. Instituting a “fresh approach
to economic management”, the Finance Minister was certain that “responsible economic and
fiscal management” will complement the momentous political reforms of the 17th Amendment
and the 7th NFC Award. “The people clearly want a government that is capable of taking hard
decisions and leading them to a bright future” 1, he said on the floor of the house. Heralding the
commencement of an ‘economic recovery’, the Minister said that inflation was down to the
12% mark while Foreign Exchange Reserves surpassed US$ 16 billion and Remittances exceeded
a record US$ 8.5 billion. The Minister also focused on delivering the financial component of
Pakistan’s security, on the fact that economic management is a day-to-day affair rather than
one that is restricted to a specific parliamentary session, and the fact that approximately Rs.
1033 billion will be transferred to the provinces for their expenditures. But what does the
budget – presented by the Finance Minister for amendment and ratification by the National
Assembly – actually tell us about the economic priorities of the present government and the
mechanisms that they will use/develop to attain their economic goals?

THE PAKISTANI ECONOMY: YEAR 2010

The following elucidates Mr. Shaikh’s assessment of Pakistan’s current economic standing, and
the most appropriate methodology to sustain national economic requirements thereof;
“Stabilizing the economy is a precondition for generating the momentum for growth. The
recovery that has been achieved remains fragile. The dangers of slippage are high. The
international situation remains fragile. The security concerns have not vanished. The budget

1
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
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“Budget 2010-2011” Shemrez Nauman Afzal, Research Analyst

deficit is still high. And we continue to remain dependent on exte rnal assistance”2. How will
that be brought about? “We will therefore continue to follow – indeed reinforce – fiscal
austerity”, says the Finance Minister. Fiscal austerity means that the government will curb its
expenditures, spend only on essential items, and maximize sources of revenue and optimize
transmission of revenue channels. “The Finance Minister said the budget aimed at seven major
objectives — protecting economic recovery, controlling inflation, achieving self-reliance
through domestic resource mobilisation, targeted social protection regime for poverty
reduction, controlling losses of public sector entities, reducing unemployment, improving
investment climate and overcoming energy shortages” 3.

The “Consolidated Budget for the year 2009-10 has estimated government expenditure at Rs.
2,877.4 billion (19.4% of GDP) and total government revenue was Rs. 2,155.4 billion (14.5% of
GDP). The tax revenue was estimated to be Rs. 1,563.6 billion, later revised to Rs. 1,380 billion,
and non-tax revenue Rs. 591.8 billion”4. During July-March 2009-10, taxes collected by the
Federal Board of Revenue (FBR) have witnessed an increase of 11.6% to Rs. 909.6 billion – as
against Rs. 815.1 billion during the corresponding period’s Executive Summary last year. This
constitutes 65.9% of the full year target of Rs. 1,380 billion which – on the face of slow pace of
collection – might be difficult to achieve as is. Hence, anticipated revenue shortfalls and
leakages in revenue transmission were experienced by the admission of the government’s own
statistics.

INDICATORS OF ‘ECONOMIC RECOVERY’

As any student of economics would know, the most important indicator of any economy is its
growth. Pakistan’s GDP growth has been registered upwards of 4.1% in 2009-10 5. According to
the Economic Survey 2009-10, “this year’s growth … was driven by the industry, agriculture and
services sectors. Industrial output rose by 4.9% (large-scale manufacturing by 4.4%), agriculture
by 2% and services sector by 4.6%”6. These sector-wise growth indicators are attributed to
growing investor confidence, an expansionary fiscal posture and “a small recovery in the global

2
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
3
Ashfaq Ahmed. “Pakistan's working class a reason to exhale”. Gulf News. June 07, 2010.
4
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
5
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
6
Nasir Jamal. “Economic Recovery Ter med Fragile”. DAW N News. June 05, 2010.
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“Budget 2010-2011” Shemrez Nauman Afzal, Research Analyst

economy” 7. It is pertinent to mention that agriculture growth missed the target range of 3.5-
3.8%. “Growth of all major crops, except cotton that grew by 7.4%, remained negative… Water
availability adversely affected the crops. Besides, realisation of lower prices in preceding season
for rice and sugarcane combined with weak demand for credit turned out to be the main
impediments for agriculture growth.” 8

The Finance Minister also stated that, “Our nascent recovery can only be sustained through
increased investment and results by the private sector. Indeed, the role of the government
should be primarily that of facilitating investment” 9. This is a definite welcome sign regarding
the economic orientation of the government – that instead of directing financial flows, it will
focus on creating an enabling environment for the quantitative increase of such flows without
directly meddling in the direction(s) of such flows. Total investment indicators are, however,
unappealing; falling significantly in 2009-10, and expected to be 16.6% of GDP (compared to
19% last year) and against the targeted value of 20%. “The decline in investment is largely a
reflection of security situation, reduced external inflows and slow global recovery after 2008
recession… Foreign direct investment (FDI) for July-April 2009-10 shows a decline of 45% to
US$1,773 million – from US$3,205 million achieved during corresponding period last year.”10
The FDI trend was also blamed on the security situation – an ominous sign of the impact of
terrorism on the economy and on economic recovery/growth. Terrorism also has a negative
impact on the ‘business friendly’ image of Pakistan and its economy; thus discouraging
investment. “The targeted investment to GDP is 17.9%, where private sector fixed investment
to GDP is projected to remain in the vicinity of 12%. The national savings as percentage of GDP
will be 14.5%. The remaining investment is projected to be financed by foreign savings of 3.4 %
of GDP.”11

The Economic Survey has also estimated the Gross Fixed Capital Formation (GFCF) to have
declined by 0.6% during the period under review, from 5.5% the previous year. This is largely
due to lack of private investment flows, with electricity, gas, large-scale manufactures (LSM),
transport and communications, and finance and insurance registering the principal declines. In
response, the Finance Minister stated that the government “remains committed to capital

7
Shahnawaz Akhter. “SBP’s third quarterly report GDP growth seen at 4.1pc in FY10”. The News. June 02, 2010.
8
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
9
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
10
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
11
Ibid.
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investment necessary to support our growth” 12. To this end, a Public Sector Development
Programme (PSDP) fund of Rs. 663 billion has been announced to finance a number of hydel
power plants; including Gomal Zam dam, Satpara dam, refurbishing of Mangla Dam and its
storage facilities, and additionally, a 300MW Chashma Nuclear Power Plant. “In FY 2010-11, an
allocation of Rs.131 billion has been made for hydel, thermal and nuclear energy projects to
augment generation and improve transmission” 13. A whopping Rs. 129 billion has been
allocated to “overcome the power crisis”14, allowing WAPDA to reduce load-shedding by 60% in
2010-2011. However, the government has also announced a Capital Gains Tax on stocks and
shares – a move that is likely to deter stock market actors from engaging with the bourses
eagerly.

Shabbir Sarwar writes, “reacting to the Federal Budget 2010-11 announcement regarding the
50 percent salary raise for government employees, a majority of people belonging to the
private sector salaried class have expressed their concerns and demanded the government
announce an appropriate salary raise for private employees as well”15. Private sector
employees said that they were equally vulnerable to inflation and scarcity, and that it is
tantamount to creating rifts between the national citizenry and workforce when only public
sector employees were given salaried relief. Teachers, clerks, lawyers and office-bearers of
private companies also voiced the same opinion; some bosses acknowledged that they were
under “moral pressure” to raise their employees’ allowances after the government raised
public sector wages.

PERSISTENT ECONOMIC PROBLEMS

The Nation delivered a sharp rebuke to the perceptions and projections attached by the
government to the Economic Survey in its editorial on June 06, 2010, in which it said that;

“As usual in the annual budgeting ritual, the 2010-11 Budget was preceded by
the Economic Survey of the year, covering the preceding financial year, 2009 -
10, to make sure that the Budget was placed in some sort of context. The
Survey said that GDP growth had been 4.1 p ercent, which was anemic unless
one kept in mind that it had only been 1.2 percent the year before that.

12
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
13
Ibid.
14
Zeeshan Javaid. “Rs 129bn to overcome power crisis ”. Daily Times. June 07, 2010.
15
Shabbir Sarwar. “Private sector employees demand pay raises ”. Daily Times. June 07, 2010.
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Presenting the Survey, PM’s Finance Adviser Hafeez Sheikh blamed the growth
situation on the USA’s War on Terror and the energy crisis. Perhaps the most
dangerous aspect of the Survey was the increase it showed in unemployment.
In an economy supposedly growing, such an increase is a highly negative
indication. Though it was not mentioned, this explains where the militants find
recruits in the War on Terror. In a growing population, that is a highly
problematic situation.

Dr Sheikh also said that the biggest challenge in the coming year would be to
keep the recovery going. However, the Budget did not indicate that the
government was taking any such steps . The first issue is whether there is a
recovery or not…

Presented by Dr Sheikh, who had taken oath as minister earlier in the day and
thus himself become qualified to do so, the main feature of the Budget was the
careful avoiding of the name of Value Added Tax (VAT), and instead speaking of
the refor m of the sales tax - effectively VAT under guise! The government
acknowledged that there was a need for austerity, but apart from the
announcement of a freeze on government non-development expenditures,
there was no such measure.

Though Dr Sheikh laid a lot of emphasis on the end of debt, which he said had
reached 60 percent of GDP, practically he still presented a Budget with a huge
deficit of Rs 685 billion. Though government servants received a substantial pay
increase, the deficit will be met only through raising debt. While some relief
has been proffered to the salaried in the form of an increase in tax exemption,
the rise in inflation, because of the sales tax reform, and the planned
imposition of VAT in October, will act to wipe out any relief afforded…

Though ther e was no real measure towards austerity, acknowledgement that

measures are needed was also a good omen for Dr Sheikh’s first day as a
minister. Though specific measures have not been announced for public sector
enterprises, where individual enterprises were identified as demanding
subsidies more than the government’s spending on itself, the
acknowledgement itself was a healthy recognition of the realities of the
situation.

Dr Sheikh also accepted that the government needed to tackle inflation. This
was not paid more than lip service… Despite the information in the Survey, Dr

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“Budget 2010-2011” Shemrez Nauman Afzal, Research Analyst

Sheikh has been unable to present a Budget which has come up to the people’s
16
expectations of relief and prosperity.”

The causes of high inflation in Pakistan are said to be:

“i) continuing pressure of food inflation;
ii) fiscal deficit especially due to security situation;
iii) adjustment in utility prices;
iv) depreciation of Pak Rupee;
v) high mark up rate and
vi) loss in productivity due to severe electricity and gas shortages”17.

Of these factors, one can easily see that food supply, electricity supply and industrial
productivity are the only real factors whose performance is contributing to inflationary
tendencies; the rest are purely monetary phenomena. “The combined budgeted allocation in
Development Budget 2010-11 for water, food and agriculture, livestock and dairy development
sectors is in excess of Rs 40 billion” 18 as a sign of the government’s cognizance of food security
requirements. Moreover, inflation has been targeted at 9.5% given prudent fiscal operations
and monetary supply management, as per the Economic Survey.

On the taxation side, the Value Added Tax (VAT) was a contentious political issue that received
cogent opposition from a lot of sectors and stakeholders; ultimately, the government was
forced to defer the imposition of VAT till October 01, 2010, and announced a 1% increase in all
slabs of the General Sales Tax (GST) as an interim measure; the reformed GST with one s lab for
all taxpayers will be instituted on October 01, 2010 as per Point 64 of the Finance Minister’s
budget speech19. Customs duties were neither levied on additional items, nor increased on
already listed items; 29 categories of products saw customs duties “simplified and reduced” 20.
Excise duty on cigarettes was imposed by Rs. 1 per filter rod, and by Rs. 10 per MMBTU of
natural gas. A 10% ad-valorem levy of FED (Federal Excise Duty) was levied on electricity-
intensive appliances like air conditioners and deep freezers. Exemption limits for income tax
were raised across all slabs, providing relief of Rs. 4.5 billion to 66,000 taxpayers. In addition,
the Prime Minister’s Fiscal Relief Package to Khyber-Pakhtunkhwa, FATA and PATA, provided an
additional relief of Rs. 2 billion to the 300,000 taxpayers of the province. Rationalization and

16
“2010-11 Budget”. The Nation. June 06, 2010.
17
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
18
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
19
Ibid.
20
Ibid.
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simplification of the tax structure – especially in direct taxation – is considered essential in

facilitating taxpayers and incentivizing foreign investment. The Finance Minister said that “the
tax measures being proposed by the government are fair, just and equitable guided by the
principle of 'ability to pay' set in context of a war economy” 21.

The overall budgetary fiscal deficit was estimated at Rs. 722.1 billion (4.9% of the GDP) against
Rs. 680.4 billion (5.2% of the GDP) last year; despite indications of improvement in the overall
performance of the economy during 2009-10, the fiscal position and the burgeoning deficit is
still a matter of concern – especially in light of the debt-provision conditionality imposed by the
IMF. The only policy solution to minimizing the fiscal deficit is “increase the revenue by
improving tax collection through broadening the tax base, particularly through introduction of
VAT and bringing into the tax net the undocumented part of the economy”, and “curtailing non-
development expenditure, elimination of wastage of public funds and help in releasing
maximum funds for development” 22.

In the first ten months of 2009-10, the current account deficit stood at US$3.1 billion (1.8% of
GDP) as compared to US$9.0 billion (5.5% of GDP) for the same period last year. The current
account deficit (CAD) was targeted at US$9.4 billion (5.3% of GDP). With improveme nt in
exports and remittances, and decline in imports, the CAD for 2009-10 is estimated to reduce to
around US$4.8 billion (2.8% of GDP) from last year’s level of US$9.3 billion (5.7% of GDP). The
improvement is attributed to growth of exports by 2.1% and reduction in imports by 6.3% and
significant increase in workers’ remittances. Workers’ remittances have continuously witnessed
a positive trend during the period July-April 2009-10, touching a level of US$7.3 billion as
against US$6.4 billion in the corresponding period of last year, registering an increase of
15%. The remittances for the full year are estimated at $8.4 billion; this upsurge has been
attributed mainly to various measures taken under the Pakistan Remittance Initiative (PRI),
leading to increased inflow through official channels.

21
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
22
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
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PUBLIC RELIEF EFFORTS

“Per capita income stood at Rs. 87,810.”23 However, this indicator is barely a good assessment
of how well the ordinary Pakistani is doing – because of the economic condition of the country,
or because of the economic management skills of the government. According to the Economic
Survey, the government is also focused on reducing poverty and vulnerability; “Microfinance
facilities worth of Rs 36.0 billion will be provided to 2.25 million people. Further, allocations for
People’s Works Programme for 2010-11 will be Rs 34.4 billion to provide public goods to the
poor” 24. The Finance Minister exclaimed the importance of social safety nets and reducing the
impact and incidence of poverty by calling for “reform and enhancement of our social
protection regime” along the lines of “innovative schemes, better targeting of the subsidies for
the needy and eliminating waste”25 or wasteful spending. The Minister also emphasized on the
implementation of targeted subsidies – as the Benazir Income Support Programme is labeled –
for direct transmission of relief to the general public.

According to an overall assessment, the economy is expected to continue on a gradual – though

firm – path of increased economic growth (with lower inflation) and continuing support to
protect the poor and the vulnerable. This warrants aggressive investment in people and in
knowledge-generation activities as well as scientific and technological infrastructure;
complemented by economic and institutional reforms that will ensure enhanced productivity
and socioeconomic improvement that translates to sustainable and inclusive growth.

POST-BUDGET RECEPTION AND RESPONSE

After presenting the budget, the “Minister for Finance Dr. Abdul Hafeez Sheikh said on Sunday
the government had adopted prudent economic policies during last three years and as a result
the economy had started showing resilience despite severe challenges. Addressing a post-
budget press conference here, the Finance Minister said, ‘the economy has shown resilience
despite severe challenges.’”26 Elucidating the positive trends in inflation, fiscal deficit and
(projected) current account deficit, “Dr. Hafeez Sheikh said Pakistan’s economic policies were
being highly appreciated by international economic organizations, saying ‘Pakistan’s

23
Nasir Jamal. “Economic Recovery Ter med Fragile”. DAW N News. June 05, 2010.
24
“Economy show signs of revival”. Associated Press of Pakistan. June 05, 2010.
25
Text of Budget Speech (2010-11). Daily Times. June 06, 2010.
26
“Economy shows resilience despite severe challenges ”. Associated Press of Pakistan. June 06, 2010.
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international credit rating has been upgraded from CCC to B(-).’”27 He also added that “the
budget for fiscal year 2010-11 has been prepared to provide maximum relief to the low-income
people, adding that nothing has been hidden in the budget” 28, continuing to say that;

“The budget 2010-11 has been prepared in accordance with the actual facts of
the Pakistan's economy and the government has do its best to lessen the prices
of the commodities, adding that twenty-nine commodity items has been
exempted from tax. Responding to a question, he said that the Military and
police would not be facilitated with increased 50% salary as announc ed in the
29
budget 2010-11” .

Let us now look at the perception of the Budget 2010-2011 in terms of different economic
sectors; primarily the businessmen and the farmers. According to Moonis Ahmed and Tanveer
Sher, “the business community of the country has expressed dissatisfaction over the federal
budget for the next fiscal year 2010-11 and said it is unclear and unfriendly to business, trade
and industry” 30. Businessmen were also annoyed by the misleading presentation of the budget,
which was classified as a “manipulation of words and figures”, and to some extent, deliberate
omissions on the part of the Finance Minister as well. Abdul Majid Haji, President of the Karachi
Chamber of Commerce and Industry (KCCI) expressed doubts at the FBR revenue collection
targets and could not hide his contempt at the levying of VAT under the label of ‘reform-GST’.
Other business-friendly proposals, such as incentivizing the industrial sector and reducing
withholding tax, were not incorporated by the government. “A leading dealer of electronics
market said that levying of 10 to 15 percent federal excise duty on electronic items, including
Deep freezer, refrigerators and air conditioners, may affect a substantial section of the
population, as these items have become household necessities with the passage of time and
their increasing rates would have harmful impact on their daily sales.”31 On the other hand,
“Chairman Karachi Wholesaler and Grocer Association, Anees Majeed, said apparently
government has not announced imposition of any new taxes on food items which may help
stabilization in their prices”32 but is still wary of new taxes in the near future.

27
“Economy shows resilience despite severe challenges ”. Associated Press of Pakistan. June 06, 2010.
28
“Hafeez Sheikh defends new budget”. Regional Times.
29
Ibid.
30
Moonis Ahmed & Tanveer Sher. “Federal Budget 2010-11: Businessmen confused over vague budget”. Daily
Times. June 06, 2010.
31
Ibid.
32
Ibid.
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“Budget 2010-2011” Shemrez Nauman Afzal, Research Analyst

Munawar Hasan writes that farmers, too, are unhappy with the ‘people-friendly’ budget
presented by the government for the fiscal year 2010-2011;

“Not a single incentive has been offer ed in budget for the agriculture sector,”
said Farmers Association of Pakistan chief coordinator Dr Tariq Bucha. “Being
an agrarian economy, we cannot afford to ignore agriculture sector.”

He said that steps should have been taken for the grain management in the
country. “Government should have announced special measures for ensuring
food security, effective grain procurement, and storage strategy,” he stressed.

“Allocation for water sector is on decline,” he said. “Farmers are already facing
33
severe problems due to the shortage of water.”

This overt opposition on part of the business community and the agricultural workers renders
further drumbeating of the ‘people-friendly’ budget moot. It is true that the government
worked extremely hard – and as the resignation of the SBP Governor shows – in understaffed
conditions to produce a realistic yet concurrently optimistic budget. It is not a secret that
Pakistan desperately needed an austerity-oriented budget; one that promises to curtail
unnecessary government expenses while maximizing and optimizing development efforts and
poverty alleviation mechanisms. Moreover, even though Finance Minister Shaikh is facing a lot
of opposition for his budget proposals, it must be conceded that the Minister’s presentation of
the budget, along with his command over issues pertaining to Pakistan’s economy and
economic management, was remarkable; certainly, it reinvested hope in the layman that the
legislator is attuned to generalized economic issues, and to the problems faced by Pakistan’s
economy. One of the most scathing critiques of the budget was given by Shaheen Sehbai, who
accuses the Finance Minister of “deferring critical decisions until October and ensuring another
major budgetary exercise or a mini-budget within the next three months”, apart from obliging
his “political bosses” and juggling and fudging of figures 34. Shaheen Sehbai argues that the
Finance Minister’s attempt at presenting the budget was “half-hearted” because he was aware
he was making promises that could only be broken. “His performance on a personal level was
straight and professional, on a political level indifferent and on the government level a
disaster”, says Sehbai, adding;

“Sheikh could only hint at the policy failures of the past in a passing way, he
talked of skewed policy directions; mentioned the blood-sucking public sectors

33
Munawar Hasan. “Farmers’ bodies dismayed”. The News. June 06, 2010.
34
Shaheen Sehbai. “The politics of budget and the new finance minister”. The News. June 07, 2010.
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and hinted at their privatisation but all along he knew that he had no mandate
to offer any solutions or to make any announcements…

He is the third finance minister who has been forced on the PPP in the last two
years because the donors, the loaners and the foreign owners of many policies
35
in Pakistan do not trust the hardcore PPP loyalists.”

Jawwad Rizvi writes that “the common man was least concerned with the budget announced
by the federal government as they said that no change for the betterment will come”36. While
his observations of the Sunday bazaar reveal that price controls were either lax or completely
absent in markets regularly accessed by the general public, the budget was termed as
“disappointing” while vendors at the Sunday bazaar said that neither did the budget change
people’s expectations or expenditure trends, nor was any relief expected from the
government’s end.

On the strictly political side of things, “as per the norm, the ruling party has declared the new
federal budget 2010-2011 as a ‘balanced budget’ and have appreciated the government’s
efforts to avoid the imposition of new taxes, while opposition parties claim that the new budget
is unbalanced and unfavourable for the middle and lower classes”37. The budget was presented
by members and supporters of the ruling party as ‘balanced’ on the basis of “peoples’
expectations” and the economic circumstances prevailing in the country. However, opposition
parties exclaimed that the budget “will not protect the masses from inflation in upcoming days ”
and had done “nothing to reduce the price hike in the country”38. Highlighting additions to the
problems of the middle class and lower class, “PML-N Labour Wing Secretary General Chaudhry
Abdur Rasheed Sindhu said the government had forgotten the labour and farmer class and had
not announced any labour and agricultural policy in the fiscal year budget 2010-2011, ‘despite
these people being the base of the economic growth of Pakistan’”39. The most vituperative
response came from the religious parties, who exclaimed that “the PPP-led government was
just a ‘mouth piece’” and that “the government had presented a budget that ‘was prepared by
the IMF and the World Bank’”40.

35
Shaheen Sehbai. “The politics of budget and the new finance minister”. The News. June 07, 2010.
36
Jawwad Rizvi. “Public terms budget disappointing”. The News. June 07, 2010.
37
Hussain Kashif. “Political parties gauge new fiscal budget”. Daily Times. June 07, 2010.
38
Ibid.
39
Ibid.
40
Ibid.
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PML-N supremo Nawaz Sharif also criticized the budget, saying that “the federal budget
released will only increase the burden on the nation. Speaking in Raiwind along with other
senior party members, Nawaz Sharif said that the government did not take any steps to help
eliminate the crises faced by the country. He said that loans worth Rs.700 billion in order to
support the economy will further devastate the already weakened economy. Nawaz Sharif also
said that poverty and unemployment could be eradicated by adopting cheap energy
resources.”41

In an editorial, The Nation purports that “the people of Pakistan, in whose name the budget will
be enforced, after it is duly passed by their representatives in the National Assembly, have
experienced no relief, nor do they see any coming in the future” 42. In what seems to be a
measured critique of the budget – especially from the businessman’s point of view – The Nation
adds;

“The Lahore Chamber of Commerce and Industry pointed out that the budget
did not do anything for the r evival of economic activity. It has also been
pointed out that the increase in the excise duty on natural gas would not only
have a negative impact on the cost of production, but the end of the zero-rated
regime would also have a harmful effect on exports. It was also noted that
there was no relief offered to the agriculture sector, even though it had been
hit hard by the water and energy shortages. The LCCI also was critical of the
budget because it had not made enough provision for water and power
projects.

The Karachi Chamber members gave Dr Sheikh high marks for presentation, but
were worried about the VAT question. At the same time, the KCCI members
also appreciated the budget's measures giving relief to government servants in
the form of a pay raise. However, despite the excellence of the pr esentation,
there was a lack of comprehension of how the government would take these
43
steps without raising taxes.”

CONCLUSION: MANAGING PAKISTAN’S ECONOMY

While the impact of the budget on the poor – given subtle tax adjustments and minor increases
in duties and levies – has yet to be ascertained, it is obvious that uncontrollable inflation will be
41
“Budget to increase people's woes: Nawaz Sharif”. DAW N News. June 07, 2010.
42
“Reactions to budget”. The Nation. June 07, 2010.
43
Ibid.
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the most problematic economic element facing the general population. Fiscal austerity must be
complemented with monetary contractions, industrial augmentation and international product
competitiveness to curtail inflation. The government’s open market operations should be
concerned more with trade (specifically exports) rather than aid – generating beneficial inward
financial flows. Industrial augmentation and an enabling business environment will not only
allow economic consolidation and strengthening of socioeconomic life in Pakistan, but will also
attract foreign investors who would be keen to establish networks in a country that can serve
as a gateway from the Middle East to Asia, and vice versa. Ashfaq Ahmed claims that salaried
people heaved a sigh of relief44 after the Budget 2010-2011 – ostensibly because of salary
increases and income tax reprieves – but the fact remains that economic growth cannot be
guaranteed – nor economic recovery sustained – without continual job creation and
enhancement of the public’s purchasing power (whether by increased salaries, enhanced price
control and regulation mechanisms, or by curbing inflation). The local economy must not only
be strengthened; it must also be encouraged to compete in the global economic community, so
as to incur gains for individual and national enterprises. The basic unit of the local economy –
the Pakistani citizen – must be understood in the dynamic economic contexts of today.

It is obvious that the present civilian government has to not only deal with the war on terror, or
political consensus-building, but also the economic turmoil that is being faced by the people –
whether it is borne by past policies, or by international economic conditions, whatever – the
government must not appear ‘absolved’ of its primary duty to serve the people. The
government has to take care of the delicate situation in which one section of the masses are
attended to, while the other section(s) appear to be completely ignored; it is very dangerous for
a political government that has public constituents to appear to be ‘picking sides’ when it
comes to matters of fiscal responsibility and economic redistribution. The present PPP
government has to take long strides to ensure that it is taking care of all Pakistanis equally,
without fear or favour, and that it should not even appear to be providing advantages to one
group or segment of society at the expense of the other – as the case has been seen with
regard to private sector employees wanting a pay increase commensurate to the one
announced by the government. Finally, and revenue collection systems have an opportunity to
prove themselves by collecting projected amounts as per the VAT – and simultaneously
documenting the national economy – in the most efficient manner.

44
Ashfaq Ahmed. “Pakistan's working class a reason to exhale”. Gulf News. June 07, 2010.
Spearhead Research 13
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